PIRANHA STRATEGY Time Frame Indicators Currency Pairs Strategy ...
STRATEGY 2: PIRANHA STRATEGY The forex market spends most of its time either in a trend or in a range. The rapid-fire scalping strategy works best in a trend. The piranha strategy was developed to work when markets move in a range. Let us get right into the world of the piranhas. Piranhas take small frequent bites off their prey until it is totally devoured. Although a single bite may not cause much harm, the frequency of the bites causes the attack to be deadly. In much the same way, the piranha strategy was developed to give scalpers ample opportunities to bite the market and chew off small profits each time. This strategy is designed specifically for the GBP/USD currency pair, using the 5-minute (M5) time frame. On average, there are about 15 to 20 trading opportunities for the piranha strategy every day.
Time Frame The piranha strategy works with the 5-minute (M5) time frame. This means that each candlestick on the chart represents 5 minutes of price movement.
Indicators We use this indicator for the piranha strategy: One set of Bollinger Bands a. Period 12, Shift 0. b. Deviation 2 (default).
Currency Pairs The strategy is designed for the cable, which is the nickname for the currency pair GBP/USD.
Strategy Concept Bollinger Bands are used to identify the trading band of the GBP/USD. The Bands help us to mimic the nature of the piranhas by giving objective entries for long and short positions. (See Figure 6.7.) Long trades are taken when market prices touch the bottom band; short trades are taken when market prices touch the upper band. Piranhas are active in relatively calm waters, such as rivers, but not in the rough open seas with strong currents and waves. In much the same way, avoid trading this strategy at times of major news releases during the U.S. and U.K. trading hours, as such environments reflect the rough open seas with strong currents and waves. We use the GBP/USD currency pair on the M5 time frame to illustrate both long and short trades.
FIGURE 6.7
Bollinger Bands Used for Piranha Strategy
Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
FIGURE 6.8
Candlestick Touches Lower Band of Bollinger Bands
Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
Long Trade Setup Here are the steps to execute a long trade using the piranha strategy: 1. Wait for the market to touch the lower band of the Bollinger Bands. 2. Enter for a long when the market price touches the lower band of the
Bollinger Bands. (See Figure 6.8.) 3. Set the stop loss at 10 pips below the entry price. 4. Set the profit target at 5 pips above the entry price. (See Figure 6.9)
From the long example in Figure 6.10: Entry price = 1.5931 Stop loss = 1.5921 Profit target = 1.5936
FIGURE 6.9
Set Profit Target 5 Pips Above Entry Price
Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
FIGURE 6.10 Trade Hits Profit Target Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
The risk for this trade is 10 pips, and the reward is 5 pips. The risk to reward ratio is 2:1, which yields us a 1.5% return if we take a 3% risk.
Short Trade Setup Here are the steps to execute a short trade using the piranha strategy: 1. Wait for the market to touch the upper band of the Bollinger Bands. 2. Enter for a short when the market touches the upper band of the
Bollinger Bands. (See Figure 6.11.) 3. Set the stop loss at 10 pips above the entry price. 4. Set the profit target at 5 pips below the entry price. (See Figure 6.12.)
From the short example in Figure 6.13: Entry price = 1.5941 Stop loss = 1.5951 Profit target = 1.5936 The risk for this trade is 10 pips, and the reward is 5 pips. The risk to reward ratio is 2:1, which yields us a 1.5% return if we take a 3% risk.
FIGURE 6.11
Candlestick Touches Upper Band of Bollinger Bands
Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
FIGURE 6.12
Set Profit Target 5 Pips Below Entry Price
Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
FIGURE 6.13 Trade Hits Profit Target Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
Strategy Roundup At the beginning of this section, I mentioned that piranhas attack their prey until it is totally devoured. In much the same way, once your trade hits a stop loss, the loss is telling you that there is nothing left of your prey and it’s time to look for a new one. Hence, hitting a stop loss is a telltale sign that the market is no longer trading in a band and it is starting to move into a trend. So how do you look for the next prey? The answer is to look for a trade that is in the opposite direction of your stop-loss trade. For example, if you took a long trade that resulted in a stop loss, look to short the GBP/USD at the next opportunity with the same rules. This is an important consideration and a neat trick for you to navigate yourself in trending markets. As this strategy was designed primarily for range trading, it fails badly when the market goes into a strong trend.
Time Frame The piranha strategy works with the 5-minute (M5) time frame. This means that each candlestick on the chart represents 5 minutes of price movement.
Indicators We use this indicator for the piranha strategy: One set of Bollinger Bands a. Period 12, Shift 0. b. Deviation 2 (default).
Currency Pairs The strategy is designed for the cable, which is the nickname for the currency pair GBP/USD.
Strategy Concept Bollinger Bands are used to identify the trading band of the GBP/USD. The Bands help us to mimic the nature of the piranhas by giving objective entries for long and short positions. (See Figure 6.7.) Long trades are taken when market prices touch the bottom band; short trades are taken when market prices touch the upper band. Piranhas are active in relatively calm waters, such as rivers, but not in the rough open seas with strong currents and waves. In much the same way, avoid trading this strategy at times of major news releases during the U.S. and U.K. trading hours, as such environments reflect the rough open seas with strong currents and waves. We use the GBP/USD currency pair on the M5 time frame to illustrate both long and short trades.
FIGURE 6.7
Bollinger Bands Used for Piranha Strategy
Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
FIGURE 6.8
Candlestick Touches Lower Band of Bollinger Bands
Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
Long Trade Setup Here are the steps to execute a long trade using the piranha strategy: 1. Wait for the market to touch the lower band of the Bollinger Bands. 2. Enter for a long when the market price touches the lower band of the
Bollinger Bands. (See Figure 6.8.) 3. Set the stop loss at 10 pips below the entry price. 4. Set the profit target at 5 pips above the entry price. (See Figure 6.9)
From the long example in Figure 6.10: Entry price = 1.5931 Stop loss = 1.5921 Profit target = 1.5936
FIGURE 6.9
Set Profit Target 5 Pips Above Entry Price
Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
FIGURE 6.10 Trade Hits Profit Target Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
The risk for this trade is 10 pips, and the reward is 5 pips. The risk to reward ratio is 2:1, which yields us a 1.5% return if we take a 3% risk.
Short Trade Setup Here are the steps to execute a short trade using the piranha strategy: 1. Wait for the market to touch the upper band of the Bollinger Bands. 2. Enter for a short when the market touches the upper band of the
Bollinger Bands. (See Figure 6.11.) 3. Set the stop loss at 10 pips above the entry price. 4. Set the profit target at 5 pips below the entry price. (See Figure 6.12.)
From the short example in Figure 6.13: Entry price = 1.5941 Stop loss = 1.5951 Profit target = 1.5936 The risk for this trade is 10 pips, and the reward is 5 pips. The risk to reward ratio is 2:1, which yields us a 1.5% return if we take a 3% risk.
FIGURE 6.11
Candlestick Touches Upper Band of Bollinger Bands
Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
FIGURE 6.12
Set Profit Target 5 Pips Below Entry Price
Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
FIGURE 6.13 Trade Hits Profit Target Source: Created with FX Primus Ltd, a PRIME Mantle Corporation PLC company. All rights reserved.
Strategy Roundup At the beginning of this section, I mentioned that piranhas attack their prey until it is totally devoured. In much the same way, once your trade hits a stop loss, the loss is telling you that there is nothing left of your prey and it’s time to look for a new one. Hence, hitting a stop loss is a telltale sign that the market is no longer trading in a band and it is starting to move into a trend. So how do you look for the next prey? The answer is to look for a trade that is in the opposite direction of your stop-loss trade. For example, if you took a long trade that resulted in a stop loss, look to short the GBP/USD at the next opportunity with the same rules. This is an important consideration and a neat trick for you to navigate yourself in trending markets. As this strategy was designed primarily for range trading, it fails badly when the market goes into a strong trend.
